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Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 3 - Evidence - January 30, 2008


OTTAWA, Wednesday, January 30, 2008

The Standing Senate Committee on Transport and Communications met this day at 6:17 p.m. to examine and report upon current and potential future containerized freight traffic handled at, and major inbound and outbound markets served by, Canada's Pacific Gateway container ports, east coast container ports and central container ports and current and appropriate future policies relating thereto.

Senator Lise Bacon (Chair) in the chair.

[English]

The Chair: Honourable senators, I call the meeting to order. Our witnesses tonight are from Canadian Tire Corporation. We have Mr. Patrick Sinnott, Senior Vice-President, Supply Chain; and Ms. Caroline Casselman, Director of Community and Public Affairs. Welcome to our committee.

Patrick Sinnott, Senior Vice-President, Supply Chain, Canadian Tire Corporation: Thank you for the opportunity to appear before this committee this evening as you investigate ways to increase the capacity and improve the competitiveness of Canada's national transportation system.

Canada has always been a trading nation, and our continued well-being depends on our ability to sustain and grow international trade. Our ability to sustain and grow international trade is dependent on Canada's national supply chain infrastructure and how well we leverage that infrastructure. During the next few minutes, I will provide you with Canadian Tire's perspectives on ways to improve the effectiveness and efficiency of our multimodal transportation systems.

I would first like to provide some background and context about Canadian Tire's business model and supply chain operations. Canadian Tire's business model consists of five distinct yet interrelated businesses: Canadian Tire Retail, which comprises 473 stores and does about $7.2 billion in sales; Canadian Tire Petroleum, which consists of 266 gasoline and kiosk sites across the country, comprising retail sales in the magnitude of $1.6 billion; Canadian Tire Financial Services, primarily our MasterCard, which comprises about $3.6 billion in receivables on 4 million MasterCard accounts; PartSource, which is a fledgling but growing automotive hard parts retail chain comprising 71 stores; and, finally, Mark's Work Wearhouse, which comprises 358 stores and does about $903 million in sales.

We consider this integrated business model to be one of Canadian Tire's competitive advantages and have therefore continued to build a strong supply chain to support our growth and effectively manage the increasing number of products that we are offering to customers.

The supply chain's role in all of this is to support retail growth by managing the flow of information from Canadian Tire to its suppliers, so that product can flow from the suppliers to the 473 Canadian Tire Retail locations and the 358 Mark's Work Wearhouse stores in a timely, cost-effective way. The more challenging piece of that is not the physical flow but rather the flow of information from the stores and from the corporation back to the suppliers so that the suppliers can flow the product properly to us.

Canadian Tire's 2008 to 2012 strategic plan includes over $2.6 billion in investments to continue to rebuild our store and supply chain infrastructure. The return on these investments is dependent in some measure on a continued increase in global sourcing and therefore on the capacity and efficiency of Canada's supply chain infrastructure. Recently, the federal government announced the National Policy Framework for Strategic Gateways and Trade Corridors. The gateway strategies are needed to serve as a framework within which the public and private sectors can work together to serve domestic and international trade.

We think it is important that we truly consider this framework as a national gateway strategy and, in particular, ensure that product flows through both the West and East Coast ports. One of the key reasons for this lies in the need to have a balanced flow of loaded transportation equipment eastbound and westbound. The key phrase in that paragraph is ``loaded transportation equipment.'' There are also environmental advantages to employing a multi-port strategy, which I will talk about in a few minutes.

Slide two of the handout depicts the flow of containers arriving at the B.C. ports. That would be this one with all the arrows on it. About 60 per cent of Canada's population live in Ontario and Quebec, and about 10 per cent in the Maritimes. Therefore, approximately 70 per cent of the containers flow from the B.C. ports to customers situated east of Manitoba. Since 2003, due to the increase in Asian sourcing, there has not been enough product sourced in Central Canada and destined for Western Canada to fill the containers that have arrived from the West Coast and need to make the return trip.

The ocean carriers and railways have the best visibility to container movement and they do their best to manage the imbalances. Notwithstanding their best efforts, there is a huge cost associated with moving the container, after it is emptied in Central or Eastern Canada, back to the West Coast and then to Asia to get another load. The imbalances and the resulting repositioning of empty containers will become larger and more expensive to manage as Asia-sourced volumes increase.

We need to change the paradigm. We need to think in terms of Canadian and global order fulfillment cycles. With this approach, the empty container is just as important as a full container in an Asian-manufacturer-to-Canadian- customer fulfillment cycle. It is not enough to think about delivering product to the customer once; rather, we need to consider how the container is used after the delivery and how a container is provided for the next delivery to the same customer. We need to minimize the growing imbalance of empty containers after the first delivery to a Canadian customer.

The next two diagrams illustrate the benefits of flowing product through both the East and West Coast ports to minimize the repositioning of empty containers. In slide 3 on page 4, we consider a retailer that sources 100 million cubic feet of product from Asia and 100 million cubic feet of product in Central Canada or the nearby United States.

In the first diagram, all Asia-sourced product is directed through the West Coast ports. Given the distribution of Canada's population, 25 per cent of the resulting empty containers must be repositioned empty back to the West Coast. The math is at the bottom of the page. You see everything coming in on the West Coast. There is one long arrow that represents 10 million of the 100 million cubic feet of product going all the way to the Maritimes. The orange arc shows 30 million of the 100 million cubic feet staying in the West. The red arc has 60 million cubic feet that moves to Central Canada. The 100 million cubic feet of product that is sourced in either Central Canada or central United States is depicted with the blue and green lines. You can see that 60 million out of the 100 million cubic feet sourced in Ontario, Quebec and the nearby United States stays in Central Canada, while 30 million of it moves west to satisfy consumer demand in the West and 10 million of it goes to the Maritimes, where 10 per cent of the population lives.

We have 60 million cubic feet inbound to Central Canada and only 30 million cubic feet westbound. We have 30 million cubic feet worth of containers going empty there. We see that 20 million cubic feet of that is emptied in the Maritimes and stranded there with no product to come back. Therefore, another 20 million of the 100 million cubic feet needs to go back to the West Coast, also empty. That means that 50 million of the 100 million cube is out of balance, meaning 25 per cent of the containers need to go straight back across the country empty. That is what happens if we bring everything in through the B.C. ports.

Slide 4 on page 5 depicts a scenario where 80 million of the 100 million cubic feet Asia-sourced product is routed through the West Coast, but 20 million cubic feet is routed through Halifax. The best way do that is to put the product on a ship in China and move it through the Suez Canal to the Port of Halifax. It will stop at several places along the way, perhaps in Europe or the Mediterranean, but the first stop in North America will be the Port of Halifax. We have been doing that now for some time. Notice that when you move 20 per cent of the product through the Port of Halifax, the repositioning of the empties is reduced from 25 per cent of the 200 million cubic feet to only 10 per cent. Thus, in this way you radically reduce the number of empties and radically increase the efficiency and lower the cost of the Canadian supply chain.

These examples assumed an equal amount of sourcing from Canada and Asia. In situations outside retail where there may be no Canadian-sourced goods to fill empty containers from Asia, the use of both coasts yields even greater balancing potential.

From Canadian Tire's perspective, too few organizations are aware of the economic benefits of flowing goods through the Port of Halifax. We need to educate the private sector about these benefits by marketing the Atlantic Gateway to customers who should logically flow product through this gateway.

Next to balancing the flow of product between the East and West Coasts, synchronizing the movement across all partners comprising Canada's supply chain is the key to increasing capacity and improving our competitive position. We can get more throughput from existing supply chain assets and at lower costs by synchronizing existing terminal, railway, off-dock yards and trucking operations.

On page 6, the last slide depicts the various partners in the supply chain. The little ``MT'' notation means ``empty.'' On the far left of the diagram, there is an ocean carrier vessel arriving at, let us say for the moment, the Port of Vancouver. There is a terminal operator at the port who removes the containers from the vessel. Toward the bottom of the diagram you see a box called ``transload''; you can move all the ocean containers to 40-foot containers to a transload and empty every three 40-foot containers into two domestic 53-foot containers so that you can maximize the throughput on the railways. That is a common practice for the larger retailers.

It is important that the ocean carriers, the terminals, the trucks, the transload and any off-dock yards where you might temporarily put any empty containers all work in harmony. All the partners are depicted on this slide. It is our view that if we work together to optimize the throughput across the entire supply chain, then we can increase the throughput with existing assets and reduce the costs of flowing products through the existing assets. However, if each partner in the vessel-to-customer supply chain on that chart self-optimizes, bottlenecks will continue to occur. That will cause delays and increase costs and reduce throughput.

We need to do a better job of leveraging technology to gain greater visibility and efficiencies across the system. For example, ocean carriers provide detailed information about the contents of each container about two weeks before the ships arrive in North America. This information could be used to plan container movement in and out of the terminals, as well as to better match people, equipment, and hours of operation to forthcoming demand.

Technology, specifically GPS systems, can help measure truck wait times and process interval times at terminals, off-dock yards and other locations so that we can improve throughput and productivity. GPS systems can also help us to determine where there are bottlenecks in the system, so that stakeholders can provide operating hours, together with staff and equipment, that are congruent with customer and supply chain system-wide needs.

The recent regulatory changes to the Port of Vancouver's licensing authority, which address compliance with drainage rate agreements as well as truck road-worthiness and emissions, make sense and are good for the environment. However, the environmental benefits of these changes pale in comparison to what could be achieved if the reservation systems at all terminals were enhanced and operations were adapted so that a truck could deliver a container and pick up a container during one round trip using only one reservation. Imagine the number of truck trips that will be eliminated and the associated emission reductions that would occur if this were achieved.

I would like to close by staying that Canadian Tire's experience reinforces for me that two opportunities ought to be pursued: first, balancing the flow of products through ports on both the East and West Coasts; and, second, achieving additional throughput capacity, productivity and environmental benefits by synchronizing terminal, railway, off-dock yards and trucking operations. We must continue to work together to search out best practices, leverage our strengths and collectively make progress so that we can increase capacity and improve the competitiveness of Canada's national transportation system.

The Chair: Thank you, Mr. Sinnott. In your annual report of 2006, on page 7, section 2.6, ``supply chain,'' indicates that approximately 37 per cent of the value of Canadian Tire Retail inventory purchases are foreign-sourced, and there are plans to increase the percentage to approximately 50 per cent by the end of 2009. That represents an important increase in a short period of time. What will be the main challenge for Canadian Tire?

Mr. Sinnott: As we grow, the percentage is on a higher base every year. The challenge is to define which product categories must be sourced in Asia versus sourced in North America. Also, as China gets better and better at making product, we must determine which products currently sourced in China from one particular manufacturer could be produced at an even better manufacturing location. Finding the very best places within Asia to source a particular category or item is the biggest challenge.

Our technologies, in particular our operations planning technologies and our forecasting and replenishing technologies, are quite advanced. We are well able to move the product. How cost effectively we can move the product once it reaches one of the ports is another matter. The biggest challenge within the supply chain is getting product moved cost-effectively off the terminal to the transload and the railway in a timely way.

The other tricky bit is that we do our best to move equipment full all the time. We try to find exporters who want to move product in the same containers that we emptied. When we empty the 40-foot ocean container at a transload, we like to take that container to an exporter and have it filled and then take it to the port so that we can triangulate and move full all the time. We are getting better and better at that, partly because we have made significant investments in chassis and containers.

The Chair: The environment is also a very important consideration for your business. Canadian Tire has taken transportation operations initiatives like using the railways, capabilities of moving domestic freight by using double- stacked containers, and increasing application of intermodal transportation to capitalize on rail movement energy efficiencies. Does that mean that most of the products, merchandise or imports will cross Canada by rail? Is the infrastructure capable and ready to receive an increase in volume? I am asking because we have heard many stories about that.

Mr. Sinnott: We have been very fortunate. When one has really good planning systems, one can give other partners in the supply chain visibility to what one's needs might be. In 2001 and 2002, we indicated to Canadian Pacific Railway that we were going to rapidly increase our Asian sourcing. Many retailers did the same thing at the same time, so for about a year or so capacity was pretty tight. More recently, we have had no problems getting capacity on the railways. The trickiest bit in the whole supply chain, from the point of manufacture to the consumer, is at the terminal.

With respect to your comment on the railways, anything that is going a substantial distance, we do our best to put on the railway every time. It makes sense for the environment, but it also makes sense cost-wise. If one does it with sufficient volumes, one gets a stable, sustainable process that works nicely. There will be natural upsets in the winter with landslides, avalanches, derailments and things of that kind from time to time. One must build some lead time in for those exigencies. I am convinced that rail is the way to go and there is ample capacity there. Retailers need to apprise the railways of their growth plans so that they can put capacity in place as time goes on. There are different means and ways for the railways to do that. If you were to invite them here, they could probably walk you through that nicely.

The Chair: I will be a bit parochial because I read that you will have a new distribution centre in Coteau-du-Lac that will be in operation in 2009 and will serve Quebec, Ontario and the Maritimes. This distribution centre will increase traffic in the area. You possibly have a study in your hands concerning this strategic location. I would like to know what the main challenge is concerning transportation in this area in the near future.

Mr. Sinnott: Yes, we are delighted with the location. We use some common sense and a lot of mathematics to choose where we put distribution centres. Coteau-du-Lac is a good place to put a distribution centre — not just location-wise, but it makes sense in terms of cycle times to stores in that region of the country. It is close to railheads, which is important. One of the things we need very badly is to position ourselves as close to a railhead as we possibly can. We had that in mind when we picked the site also. There will be very short distances on the inbound line, because more than 50 per cent of the product that goes into that distribution centre will emanate from Asia and will come either from the Port of Halifax by rail to that distribution centre or from Vancouver all the way to the distribution centre by rail. On the outbound, it will be rail into the Maritimes to different points, to Moncton or to Halifax, and trucked from there to stores. You stop wherever there is an intermodal site where you can get product off a train and onto a truck efficiently.

The challenge there, in terms of wear and tear on roads, will be in proximity to the distribution centre. If we move 50 million cubic feet of product through there and divide it by about 2,000 cubic feet per load, that gives you the number of truckloads that need to move out of that facility to stores. On the inbound there is not much wear and tear because it is coming by rail, with a short shunt from the railhead to the distribution centre, but on the outbound it goes by truck to stores.

Senator Oliver: Thank you for your excellent presentation. You have given a great overview. It is instructive to what we are doing. The key to your presentation for me is on page 7 where you talk about the need to do a better job of leveraging technology to gain greater visibility and efficiencies across the system. You give as an example ocean carriers providing detailed information about the contents of each container two weeks before the shipment arrives in North America. We as a committee are public policy-makers. Public policy-makers make recommendations to the government about new laws and regulations. This sounds to me as if it is more of a business decision. I do not agree with putting in regulations and imposing regulations on business if it is something business should be doing itself.

If you would not want the government to regulate this kind of cooperation on these things, is this something business can do on its own, including GPS and so on, so that you can use the information of planned container movement in and out of terminals? Many different parties will have to cooperate. How can that be orchestrated?

Mr. Sinnott: I can take that question apart a bit. I agree that we ought not regulate something that businesses themselves can do. There is no question that larger organizations can certainly do that. The information with which to do it is readily available, because under the Homeland Security Act every organization that takes product into North America has to provide information 24 hours in advance with respect to what the contents of containers are and where they came from. We all know what that is. It takes two weeks to cross the ocean, so the information is readily available.

We leverage it heavily to provide the terminals, the railways and our transload operations information about how many containers will arrive and when, how many will move to a transload to be converted into 53-foot containers and how many trucks we will need to deliver direct to store as soon as the shipment arrives. We are leveraging that information now. I am not sure how many other retailers are able to do that right now. I know of at least one retailer that certainly has the technological capability.

Senator Oliver: Wal-Mart?

Mr. Sinnott: Perhaps. The information is there. I did not mention it in here to suggest that we ought to regulate it. I put it in to say that that is a big opportunity for the industry.

Senator Oliver: Can it be worked out with the information that is already available through the Department of Homeland Security?

Mr. Sinnott: The Department of Homeland Security simply requires that the information be provided: One cannot take a container load of product into North America without having first provided the information. The work to be done involves putting technology in place to leverage the information. The information is there because of the Homeland Security Act. What we do with it is independent from the Homeland Security Act. There is an opportunity there for the people who are bringing the product in, the retailers, to inform their business partners about what is coming so that we can be better prepared when it gets here. Instead of having something arrive and saying, ``My goodness, here are 200 containers; I did not know how many I was going to get,'' why not carefully plan how many containers will arrive every day and be ready to deal with them when they arrive?

Senator Oliver: You indicated in your remarks that you are already bringing some product up through the Suez Canal, stopping in parts of the Mediterranean and Europe and then coming over to Halifax.

Mr. Sinnott: Yes.

Senator Oliver: Are you sourcing that information largely in China or India?

Mr. Sinnott: Yes, we are. We moved about 11 million cubic feet of product through the Port of Halifax last year and 55 million cubic feet through the Port of Vancouver, so about five times as much through Vancouver as through Halifax. That would amount to 5,000 containers through the Port of Halifax. That product emanated from China. I am not sure about the exact route in each case, but in certain cases it would move as far as Singapore, change ships and then start across to North America.

Senator Oliver: Have you seen the Port of Singapore, and are you familiar with how they use technology there? Are there any lessons from what you have seen there that you would recommend to this committee?

Mr. Sinnott: Yes, senator, I have seen the Port of Singapore. I am not completely familiar with the technology. I know it is highly automated. There is one terminal run by Maersk in the Port of Norfolk, Virginia, that is brand new and exceptionally highly automated. I have seen Hutchinson Whampoa's international terminals in Hong Kong that are exceptionally well automated. There are many good examples around. However, we need to think about what is right for us rather than simply adopting something from somewhere else. That would be my comment.

Senator Eyton: Thank you for being here and for your presentation.

I would like to better understand something that is probably evident, but I missing it. First, you start with five businesses and then you have a series of charts. Is all of that peculiar to Canadian Tire? Are we looking at national shipping or at your shipping?

Mr. Sinnott: That is a good question. I apologize if I was not clear about that. The charts work for the flow of pretty much anyone's product where the consumer base is national. It could depict Canadian Tire's flow of product if we wait till 2010, because we are not yet 50 per cent sourced. The source for the information in the second slide with the map of Canada and the arrows on it is WESTAC, the Western Transportation Advisory Council. I sit on the executive committee of the board of that organization. It did an excellent survey about a year and half ago to measure the flow of both bulk and containerized cargo in Canada, and that is one of the best sources of information around.

Senator Eyton: I assume — I am probably wrong, but I come from Toronto — that the five businesses would have a stronger presence in the East than in the West.

Mr. Sinnott: You mean for Canadian Tire?

Senator Eyton: Yes.

Mr. Sinnott: With respect to Canadian Tire Retail, it is balanced across the country. There might be a very slightly heavier weighting in Ontario, Quebec and the Maritimes than out West because we have been in Ontario, Quebec and the Maritimes for a longer period of time; however, the sales pattern pretty much matches the population percentages.

Senator Eyton: You are not disadvantaged. Generally, do you think this might apply to you as well?

Mr. Sinnott: In fact, it does apply to us.

Senator Eyton: One way to be more efficient is to combine with someone who has an opposite need. You have not talked at all about the users. You have said that the railways and the truck people should do a better job, but you have not talked about the users. Should the users not combine? It occurred to me that Canadian Tire should get together with a shipper out and get a contract for five years: ``We can get a 25 per cent discount on our shipping rates if we combine. We will take it on the way in and you will take it on the way out and we will deliver it as a package to one of the providers.'' Could you do that?

Mr. Sinnott: We negotiate rates and capacity for ourselves with the railway. We have a little over 5,000 containers that are our own. On the inbound from Asia, once we get to the transload and we load those, for everything moving eastbound we use the containers ourselves all the time. Sometimes going westbound we do exactly what you say.

Senator Eyton: Now you have an empty container. Why do you not have a standing agreement with someone who is shipping westbound?

Mr. Sinnott: We do.

Senator Eyton: Why do you care about all these other people then? As long as you can get the right arrangement and mix for you, should that not work? Competition can be very useful.

Mr. Sinnott: It is, and I suspect we are one of the best at filling containers westbound. Right now, we have no empties.

Senator Eyton: Then why are you here?

Mr. Sinnott: I was invited, sir, and I am simply saying that the same is not the case in many other situations. I am not being especially altruistic here, but to the extent that empties move in our system, the forward move bears the cost of the return trip, and it is burdening all our rates. Let us face it: the railways will not bear all the costs with no revenue associated moving an empty back out west. They do their best to fill them. We do our best to fill them. Anyone who has visibility and can arrange partnerships or has enough control over the containers does their very best to do what you just said. All that said, so much product is coming from Asia compared to product moving westbound that we know many empties are moving west on the train.

Senator Eyton: The train lines are against it, in any case.

Mr. Sinnott: Yes. If the Port of Halifax were used to a far greater extent, those empties would disappear.

Senator Eyton: What has happened to our great brother to the south? This is all lovely because it shows Canada, but there are a whole lot of facilities and options not very far south of us. Do you make use of that? Why does that not figure in your calculations?

Mr. Sinnott: That is a great question. You are hitting all the right notes. We do use Long Beach and the Port of New Jersey, but in such small quantities that we did not depict them on the slide. We use Long Beach with Maersk on a Maersk waybill because they are the largest ocean carrier in the world, and they have a terminal of their own there, and it is reliable. We use the Port of New Jersey for much the same reasons, but to a far lesser extent than Vancouver or Halifax.

The tricky bit is that we have no stores in the United States. We can bring loads inbound. They have to come on a 40-footer all the way inbound, and to go back out, there are stores to deliver to. There are stores all through New Brunswick, Nova Scotia and all through B.C. and Alberta, and it is very efficient for us to use ports that are closer to our stores. That is why we do not use the United States ports to any greater extent.

Senator Eyton: You talked about changing patterns and protecting the structure so that it is more efficient, but there are many players, and some are greedier than others, and all are independent and aggressive. It seems to me you are asking a great deal. Some kind of cooperation is required in order for the scheme to work. It means you have to ship with the railways, shippers, truckers and who knows what else. I suppose air cargo is one possibility. How can you possibly bring order to that mix of people, all of whom have their own agendas and all of whom are trying to generate their own profit?

Mr. Sinnott: Therein lies the challenge. I am not suggesting that it is an easy thing to do or that this committee or the government should undertake it. I am simply saying that the opportunity is there, and I agree that the more we share data and make clear what the opportunity is, the more likely it is that two parties or several parties will get together and utilize the information. We have come a long way already; for example, we co-located with CP Rail right on the railhead in Calgary, and it eliminates all our shunting. We provided CP Rail with information about what our growth rate should be from Asia, and they deployed the capacity so that we have ample capacities on the railways; however, we had to provide the information. We provide information to one of the terminals in the Port of Vancouver now, and we are working in a much better way on night gates than ever before. The genesis of it is in place. It is simply a matter of picking up the pace and utilizing more of the information.

Senator Eyton: I should look at the pattern of shipping. I have the ocean-going ships, and I know that business is competitive — lots of them and lots of choice.

On the other hand, I know about trucks and I drive behind them every day, and there are many trucks with lots of competition. There is a little player in the middle, namely, our two railway companies. They probably represent an opportunity to go in the way you are suggesting, but are they also a problem in that regard? I do not believe there is strong competition for the railways, particularly in certain ports.

Mr. Sinnott: It is a duopoly, and that limits the degree of competition. We have been fortunate working with the railways; we provide a lot of forward-looking information so that we can apprise them of what our needs are on a week-to-week and month-to-month basis. There are probably other organizations in Canada that have had a pretty difficult time with the railways. I think that one of the railways in particular runs a scheduled railway, and if you are not there at exactly the right time, you will not get on, and if you do not book in advance, you will not get on. That makes that railway incredibly productive, but if you do not give them good visibility and execute exceptionally well, it makes it difficult to work with that railway. However, that is simply the way it is in Canada with two railways.

One of the two railways in Canada is in fact a North American railway. The two railways in Canada provide a better service than some of the railways in the United States; they are very well run.

Senator Merchant: I am looking at your charts. I am sitting in Regina, Saskatchewan, and we want to become part of this and take advantage of this container movement. We only have 1 million people, a lot of land, labour and service options, and minimal environmental and congestion issues. With your expertise, where do you see us fitting into this pattern? We have many products that we want to ship out, and we do not like to see empty containers going by because we need them.

Mr. Sinnott: There may be some organizations for whom it makes sense to situate a facility in Saskatchewan. I rather doubt that that will be the case for many of the national retailers. Why not put one in Vancouver? Well, there are no stores in the ocean, and if you take your compass and draw a circle around a facility in Vancouver, you do not get much store coverage. If you move in as far as Calgary, you can be in Vancouver in a day and bit and be through to Regina or even Winnipeg in two days.

Geographically speaking, the best place for retailers to put a facility in the West happens to be Calgary or Edmonton. It is just the geography. Other areas might logistically be of interest, but they do not lie in a retailing area. They lie in bulk terminals, gathering product together, so it can go on a rail bulk-wise, perhaps. I am not an expert in the movement of bulk products. There is a lot of research going into putting bulk products such as grain in containers. There is also the notion of air cargo and cargo coming the shortest distance from, for example, Europe via Russia, and it would be Regina and Winnipeg, so there are opportunities in air cargo on that front. In hard goods and soft goods retailing, geographically speaking, Toronto, Montreal and Calgary are probably the logistically sensible places to put one's distribution centres.

Senator Massicotte: It is common sense that if you can avoid empty containers, that is obviously beneficial. Having empty containers seems to be the case of many Canadian companies other than yours. Why is the Suez Canal not used more? Significant savings could be achieved. Obviously the cost of shipping is greater, but there must be a reason they do not do it more often.

Mr. Sinnott: There are a couple of reasons. One is that it is a long cycle time, and not all retailers agree with our thinking in this respect. Cycle time is worth a lot of money. You want to minimize the length of time between when you buy the product in China and when you get it to the customer. Some people say the cycle time is too long to go to Halifax. That would be one reason.

Second, not all ocean carriers are willing to call on the Port of Halifax. Many ocean carriers coming from Europe would prefer to call on Montreal and not on Halifax, or they prefer to call on New Jersey or New York. Some ocean carriers prefer to serve the east coast of the United States by coming through the Panama Canal, up the coast as far as New York, and then they turn around and go back, like a pendulum run.

Too few ocean carriers are calling on the Port of Halifax. I commend Karen Oldfield, CEO of the Port of Halifax, for the work she did visiting ports and possible cargo owners throughout Asia to convince Maersk and China Shipping to call on the Port of Halifax. Maersk undertook an acquisition of P&O Nedlloyd and had some challenges merging the two organizations. They lost a substantial amount of money two years ago and decided last spring to no longer call on the Port of Halifax, and China Shipping decided the same thing.

If more oceans carriers called on the Port of Halifax, more product could flow through there. One needs ocean carriers that come from various ports in China to arrive on various days. The ocean carriers are really in the driver's seat on this. They determine where they will call. That is another good reason why we must do what I am suggesting in the terminals in Vancouver and Halifax. We have to have outstanding terminal operations, because if the ocean carriers find that it is difficult to get product through a port, they will simply go elsewhere.

The short answer to your question is that more ocean carriers need to call on Halifax. We need to convince other retailers that the win from mitigating the empties offsets the additional cycle time for going through the Suez Canal.

Another point is that as the ships get bigger — and they are getting much bigger — they cannot move through the Panama Canal. A greater proportion of the ships are getting bigger, and Halifax is a deepwater port. There will come a day, as cargo continues to grow and as the West Coast ports get closer and closer to capacity, when it will not be nearly as difficult to convince more ocean carriers to call on the Port of Halifax. It will take some time.

Senator Massicotte: Is that because of the expansion of the canal?

Mr. Sinnott: Even with the expansion of the canal. They are building such big ships now. The Emma Maersk is an 11,000-TEU vessel, and her sister ship is a comparable size. Deepwater ports that can take large vessels will be in demand.

Senator Massicotte: What about going to Montreal? What percentage of ships can be accommodated through Montreal?

Mr. Sinnott: I do not know the exact size, but the very large ships would not be sent up there.

Senator Massicotte: What is the cost? Whether a ship comes through Halifax or another port, it has to be unloaded, and that cost is the same. From a supplier's point of view, is it cheaper to travel by ship to Montreal or by rail on a container? You have the fixed cost of unloading, which is the same in both cases.

Mr. Sinnott: That is a very good question. I am not the right person to ask, because I know only what it costs to go by rail through Halifax. We do not use the Port of Montreal. We have so many stores in the Maritimes that are proximate to the Port of Halifax that it makes more sense for us to use the Port of Halifax. I do not know the answer.

Senator Massicotte: Let me talk about ports and efficiency. You make significant suggestions about how operators can increase their efficiency with technology. Obviously, competition has an immense benefit. If you think you will lose business because someone else is doing a better job, it increases the motivation to get your ship in shape and do the job well. You could argue that Halifax is our major competition. However, as Senator Eyton mentioned, you have direct competition in the United States. In your case, being a predominantly Canadian retailer, it does not make sense. For many other businesses, it does make sense, such as those who stop in New York.

How does our efficiency compare to the ports in Long Beach, New Jersey and New York? How do our operators compare in terms of efficiency and ability?

Mr. Sinnott: They are much better than some and on par with others, but I am not sure that that is the right frame of reference. We should look at the best ports in the world and aim to be amongst the best in the world rather than amongst the best in North America.

Senator Massicotte: Which ports are those?

Mr. Sinnott: I would say the new port in Shanghai, Singapore and the Port of Hong Kong. I cannot specifically name ports in Europe, but I have seen some metrics in Europe, and there are some very well run and efficient ports in Europe. To properly answer your question, we should benchmark globally and not within North America.

Senator Massicotte: A couple of years ago, I visited the Port of Hong Kong. How do we compare with that port and what do they do differently that is so much better than what we do?

Mr. Sinnott: I can quote some ideas about automation, but the best people to ask are people who run the ports here. They are highly qualified people to answer that question. I am a retailer and not really the person to talk about terminal operations or port operations. I could recommend some people.

Senator Massicotte: I have a follow-up to our chair's question about your distribution centre in Montreal. I gather that is planned. Is your location decision relevant to the fact that CP is also looking to move their rail lines adjacent to your warehouse?

Mr. Sinnott: Exactly. They will be within 10 kilometres when they relocate the railway yard.

Senator Massicotte: That is very relevant to you, I presume.

Mr. Sinnott: That was a big part of the decision. In fact, had CP Rail been able to reposition perhaps two years sooner than they likely will, we probably would have been about 10 kilometres down the road at a place called Les Cèdres, on their site.

Senator Massicotte: In both cases, I presume the only approval you need is municipal. Is that correct? You probably also have an agricultural zoning issue. Have you resolved these approval issues for you and CP?

Mr. Sinnott: I cannot comment on CP. The area that Canadian Tire chose, which is very close to Les Cèdres, in Coteau-du-Lac, happened to have a big industrial park that had already been zoned as industrial. That was very helpful for us in terms of cycle time. I think there was some land adjacent to that that we did not purchase, which, if I understand it correctly, has not gone through all the approval processes yet. It is intended that it go through a process, and that could happen sometime in the future.

Senator Oliver: I would like some help understanding your second chart. It says that about 70 per cent of containers arriving in B.C. ports move to customers in Central and Eastern Canada. For Quebec, it says 24.1 per cent; and for Ontario, 38 per cent. Is this where most of Canadian Tire's customers are?

Mr. Sinnott: The percentages in black on the page are simply the percentage of that province's proportion in relation to the Canadian population. That is all it is.

Senator Oliver: That is not your business at all?

Mr. Sinnott: That is not our business.

Senator Massicotte: It is pretty close, I would guess.

Mr. Sinnott: As it happens, it is pretty close.

Senator Oliver: You started in the East, and you said most of your clients are in Quebec and Ontario.

Mr. Sinnott: Each year, our ratio of stores and sales to the Canadian population gets closer and closer to the location of the population. When we add stores, we logically add stores where we are under-serving the population, so every year the match between sales and population gets better and better. I do not have the data in front of me, but the population of Ontario is 38 per cent of the total population of Canada. I think we might be a little higher than that in terms of percentage of sales as a total.

Senator Oliver: If that is correct and most of your sales are in Eastern Ontario — Toronto, Hamilton and Ottawa — it would seem that Halifax port would be more proximate for you than Vancouver to get to those markets in Eastern Ontario.

Mr. Sinnott: As it happens, there is an optimal number to get to in terms of how much we flow through Halifax based on what we do sell in the Maritimes and Quebec. We moved about 11 million cubic feet through there last year, and that amounted to about 5,000 containers. Once we get close to 9,000 or 10,000 containers, that will be the right number for Canadian Tire to flow through on a steady state basis, adding a little bit every year for inflation. We are not moving as much through the Port of Halifax as we would like to yet, but the rate of acceleration is very high and we are moving more and more through there every year.

Senator Eyton: Your presentation was very interesting. You have described the promised land, but you still have not told us how we can get there.

Mr. Sinnott: Senator, you make a good point. You said earlier that there are many parties involved. How do you get them all to work together? There is no magic. We have to work together on it. Even if you work on a customer-supplier basis one to one, the provision of forward-looking information is the key. We just have to keep working away at it. If one were in China and not advocating this at all, someone would mandate this to happen. I do not agree with that, and I am not suggesting that in any way.

Senator Eyton: I will be more precise. What can the government do?

Mr. Sinnott: I think government has already done a lot. The Gateway strategy is a great way to provide a framework for the public and public sectors to work together. I think also the work done by Minister Emerson and by the Province of British Columbia with the Port of Vancouver to solve the problem out there was excellent. I am not sure there much more the government should be doing right now in this respect. The three individual CEOs recently wrote a report on the Asia-Pacific Gateway and Corridor Initiative that was made public this week. That was delivered to Minister Emerson this week, and they set forth in far greater detail than I did today what the challenges and opportunities are.

Senator Oliver: Who were the three CEOs?

Mr. Sinnott: They were Jeff Burghardt, Arthur Defehr and Richard Turner, and the report is on the Transport Canada website, I think.

Senator Massicotte: I do not have a question, but I could make a note that is not relevant to this. We are talking about shipping, but the real mystery is that Canadian Tire as a retail concept is immensely successful in Canada and not duplicated anywhere in the word. How can you be so successful in Canada? Congratulations.

Mr. Sinnott: Thank you.

Senator Oliver: He might want to give an answer.

Mr. Sinnott: It is a mystery.

Senator Eyton: I was looking forward to your appearing at the same table as Wal-Mart and agreeing on a strategy.

The Chair: Wal-Mart will appear before us too. Thank you very much for accepting our invitation to appear before the committee. We were looking forward to having you with us, and we are pleased with all of your answers. Thank you very much again.

Mr. Sinnott: Thank you, Madam Chair.

The Chair: Honourable senator, we will adjourn until next Wednesday. We will have as our witness, from the Port of Montreal, Mr. Pelletier, the new CEO of the Port of Montreal. We will also deal with the file sent to us today by the Senate, the observations. We dealt with that last June. It was sent to us again today, so we will have to deal with this next week after we hear from Mr. Pelletier and send a report to the house to be adopted.

Senator Oliver: I do not know anything about it, but do you have to have witnesses on it?

The Chair: The people from the ministry will attend. If we have questions, they will answer them, but they already did that. We already did all the work, but it was not reported because of the prorogation or something. We will deal with it next Wednesday.

The committee adjourned.